The Business Benefits of Oracle Subledger Accounting An Oracle White Paper September 2007 The Business Benefits of Oracle Subledger Accounting EXECUTIVE OVERVIEW “Centralization of the subledger accounting rules would minimize setup and maintenance, providing greater financial control and enforcing a consistent approach for true global accounting.” —Carolyn Carter, Director of Global Accounting, Emerson Corporations today need accounting systems that provide accurate and reliable information, adhere to the highest standards of transparency and controls, fulfill varied legal and management reporting requirements, and enable the books to be closed as fast as possible. Oracle E-Business Suite Release 12 introduces a new Subledger Accounting (SLA) module that works together with Oracle General Ledger (GL) to provide a worldclass accounting system. This new accounting architecture addresses the concurrent needs for strong internal controls and diverse accounting treatments. It offers unparalleled visibility into enterprise-wide accounting information with a single, global accounting repository and user-driven reporting. In short, SLA is a robust, centralized accounting engine and repository that enables true global accounting. INTRODUCTION Running a global business means successfully addressing conflicting requirements in all facets of the enterprise. Fiscal operations offer no reprieve. The more successful or profitable your organization becomes the more complex and stringent the accounting requirements become – or so it seems. From evolving global accounting standards, to new internal control legislation, to sophisticated reporting and analysis requirements – accounting operations have a heavy load to lift. Oracle Subledger Accounting addresses these diverse requirements with a complete solution that allows you to: • • • Lower costs with streamlined accounting processes Meet diverse global accounting requirements and maintain internal controls Access better information and provide better reporting In the following pages, we will offer information about specific capabilities that support these assertions. We’ll also provide detailed examples of how these features can be applied to real world business scenarios. The Business Benefits of Oracle Subledger Accounting Page 2 LOWER COSTS WITH STREAMLINED ACCOUNTING PROCESSES Simplify and Standardize Accounting Processes In order to achieve a competitive advantage, companies must continue to lower the cost of doing business. One way that many companies are making this happen is by standardizing and centralizing administrative processes - with accounting at the top of the list. When an organization standardizes its accounting policies, it needs to document the policy, communicate it to those who must apply it, and ensure the standard policy is enforced – not always an easy task. Oracle Subledger Accounting offers support for these initiatives by formalizing the generation of global accounting entries into centralized accounting rules. Corporate accounting policy is documented in the form of user-defined accounting rules within Oracle Subledger Accounting. These rules can be distributed across database instances to insure the entire enterprise adheres to the same set of rules, even if they operate on multiple instances. Enforcement of the rules is automatically achieved because SLA creates the accounting entries for all subledger transactions using the accounting rules that the company has defined. Users without access to the rules cannot modify or override them, providing your enterprise centralized control. Furthermore, Subledger Accounting allows you to automate steps that have traditionally been done manually. Rather than keying in distribution accounts, let SLA take care of it for you. Automated account generation helps to dramatically reduce data entry errors which force costly reconciliation. It is important to note that SLA is complementary to the account generation tools you may have run on earlier releases of Oracle EBS Applications. So if you currently use AutoAccounting or Workflow Account Generator for account generation, you’ll be able to continue to do so. However, SLA offers significant opportunities for streamlining accounting processes if its features are fully implemented. Centralize Accounting Data from Third Party Systems Oracle Subledger Accounting, in combination with Oracle Financial Services Accounting Hub enables you to centralize accounting data from any third party transactional system. Most companies run transactional applications from multiple vendors as few businesses have standardized on a single applications vendor. Typical heterogeneous environments require expensive customizations to connect transactional systems to the general ledger for financial reporting. Adding to the complexity is incongruous data requiring clean-up, which is often a manual process. Oracle Subledger Accounting in combination with Oracle Financial Services Accounting Hub enables you to centralize accounting data from any third party transactional system. Together, they offer an open repository and a centralized accounting engine for transactional data from any third party source. They lower implementation and maintenance costs by eliminating the need for expensive customizations; and they keep your general ledger free from ‘bad’ data while giving you better visibility into your subsystems and the enterprise as a whole. As a comprehensive view of all subledger accounting data, SLA behaves like a detailed version of your general ledger and provides a rich store of information for reporting and analysis. The Business Benefits of Oracle Subledger Accounting Page 3 User-Configurable Accounting Rules Every company is different: HR policies are different, T&E policies are different, and the same goes for accounting policies. One company may record expenses against the cost center that ordered the goods while another company may record expenses to the cost center where the goods are shipped. One company might want the transaction number, transaction type and customer name included in the description of the journal entry for reporting or ease of identification, while another company may want the transaction amount, currency exchange rate and the user who entered the transaction recorded in the journal description. There is no end to the variations and preferences that companies have when it comes to how accounts should be derived and the type of information that should be captured in journal entries for management and financial reporting purposes. When an accounting system is not flexible enough to handle these requirements, users frequently resort to building expensive customizations to achieve the desired result. They may also resort to entering adjusting journal entries to ‘fix’ the accounting that is generated by the system, which is costly in terms of manual effort, potential for user error and lack of audit trail for such journals. User configurable accounting rules and descriptions within SLA are incredibly flexible and can meet virtually any accounting requirement. The possibilities are limitless. Fortunately, Oracle Subledger Accounting offers maximum flexibility for generating accounting entries by making it possible for the user to configure accounting rules based on virtually any attribute of a transaction. For example, the expense account for a payables invoice could be derived based on any attribute of that invoice including item, item type, or PO distribution. The liability account can be based on the supplier, or even broken out into multiple liability accounts by supplier site. A deferred revenue account on a receivables transaction can be broken out by different lines of business based on the nature of the revenue. You can even define conditional rules such as recording customer invoices to different receivables accounts based on the credit risk of a customer. SLA provides the ability to define accounting rules that derive an entire account combination from various transaction attributes, or you can define separate rules to derive individual segment values of an account combination, or anything in between (i.e., one rule to derive an entire account combination and then additional rules to override one or more of the segment values). The possibilities are limitless. Journal and journal line descriptions are also user-configurable so that you can include any piece of transaction information in them. Common examples include supplier attributes, customer attributes, transaction name, transaction number, status, descriptive flexfield information, dates, periods, currencies, exchange rates, etc. Users like to include this type of information in the journal descriptions to help identify the originating transaction and to minimize the need to drill down to the subledger transactions to retrieve details. User-configurable accounting rules and descriptions within SLA are incredibly flexible and can meet virtually any accounting requirement. Streamline Period-End Close and Improve Reconciliation From an accounting operations perspective, closing the books at period end in a timely fashion is always given high priority. But problems such as accounting The Business Benefits of Oracle Subledger Accounting Page 4 entries recorded to the wrong account, last-minute adjustments and reconciliation issues tend to slow down the process. Oracle Subledger Accounting offers a wide variety of features to help you expedite this process: • SLA allows you to define, test and validate accounting rules; therefore, journal entries generated by SLA have very little risk of error. Accurate Accounting: Journal entries recorded to the wrong account are a common cause of reconciliation issues during the close process. Common transactions like reversing out the liability owed to a supplier when an invoice is paid or reversing out the receivable from a customer account when cash is received, can easily introduce problems if the liability or receivable account against which the invoice was originally recorded is not the same account that is reversed. The same thing can happen in public sector accounting when an amount is encumbered using one account and the encumbrance is reversed to a different account. Oracle Subledger Accounting was engineered to prevent these kinds of problems. SLA allows you to define, test and validate accounting rules; therefore, journal entries generated by SLA have very little risk of error. Furthermore, SLA specifically addresses those accounting issues that relate to a string of events or a transaction flow by ‘remembering’ the original account that was used in the initial event (i.e., invoicing), and ensuring that the same account is reversed during the subsequent event (i.e., payment). Performing accounting accurately helps to reduce reconciliation issues during the period-end close. Online Accounting: For last-minute transactions that need to be recorded in the subledgers during a tight close schedule, you don’t always have time to kick off a batch process and baby-sit the process through multiple steps until the entry is posted to the general ledger. With Oracle Subledger Accounting, you can launch accounting directly from the transactions window to initiate those last minute journal entries. Straight through processing allows realtime, single step posting to all relevant ledgers (primary, secondary and reporting ledgers). Preview Accounting: For tricky last-minute adjustment transactions that need to be recorded in the subledger, you want to be sure you don’t make a mistake because once the accounting is created for the transaction, it cannot be changed. If there is an error, it could mean another manual adjustment must be made in the general ledger, which may require another round of approvals, posting, etc. Furthermore, for businesses operating in certain European countries, it is highly undesirable to the governing authorities if a journal is reversed due to an error in accounting. SLA resolves these issues by allowing you to preview the journal with the exact GL accounts that would be impacted by the transaction before you actually post it. This feature helps to prevent the need for manually correcting journals by allowing the testing of setup rules with what-if type analysis. Controlled Accounting: Transactions erroneously posted to the wrong account are another cause for reconciliation issues. For example, the supplier liability account may not reconcile to the supplier invoice totals if an erroneous manual journal was posted in general ledger that updated the • • • The Business Benefits of Oracle Subledger Accounting Page 5 liability account balance. You can prevent this from occurring with Oracle Subledger Accounting by designating any account as a ‘control account’. This flag prevents GL manual journals from posting to them as well as SLA journals from inappropriate subledgers. For example, it can prevent the supplier liability account from being updated by the Receivables subledger. This preventive measure dramatically reduces reconciliation issues during the period-end close. Additionally, this feature supports tracking of and reporting on control accounts for trading partners, so you can track receivables balance by customer, or payables balance by supplier. • Oracle Subledger Accounting informs you of outstanding transactions in any of the subledgers for the period you are trying to close so you can close the period with confidence. Streamlined Accounting: Bottlenecks in the close process sometimes occur when an account has been disabled, but existing transactions still use the disabled account and remain to be imported to the general ledger. For example, it could be the last day of the period, and you run the Payables accounting program and it rejects three invoice lines because the cost center that was valid when the invoice was entered into the system has been subsequently disabled. Or worse, it could reject a payment because a management segment value in the supplier liability account has since been disabled. In Release 12, Subledger Accounting in conjunction with Oracle General Ledger has introduced the ability for users to specify a replacement account for any account combination that has been disabled. When SLA encounters a disabled account and a replacement account has been defined, it automatically substitutes the new account for the old one and stores the disabled account so that there is a full audit trail. Being able to replace disabled accounts helps to eliminate bottlenecks during the period-end close. Comprehensive Accounting: When you are ready to close the accounting period, how do you know there aren’t any lingering transactions in the subledgers that haven’t been processed yet? Oracle Subledger Accounting informs you of outstanding transactions in any of the subledgers for the period you are trying to close. This feature allows you to close the period with confidence. • Oracle Subledger Accounting includes many features that minimize reconciliation issues and proactively helps you to close your books faster. MEET DIVERSE ACCOUNTING REQUIREMENTS AND MAINTAIN CONTROLS Enable Concurrent Compliance with Multiple Accounting Standards Earlier we discussed the trend toward standardization of accounting policies, but as with any attempt to standardize, there always seem to be exceptions that need to be made. With an increasingly global economy comes added complexity for accounting operations as well as fiscal and management reporting. Mergers and acquisitions and evolving compliance requirements also add new levels of complication to the mix. Multi-national enterprises operate in different countries, each often with its own set of accounting and reporting requirements. This results The Business Benefits of Oracle Subledger Accounting Page 6 in the local accounting office having to produce multiple sets of financial statements to satisfy local, statutory, and parent company reporting needs. The staff in the local accounting office also needs to have expertise in all of these different accounting principles and regulations to get the job done. Oracle Subledger Accounting was designed precisely to address such dynamic and multifaceted business environments. It provides you with the ability to control and enforce your standard accounting practices, but also gives you the flexibility to handle the exceptions and define additional sets of accounting rules where needed. Together with Oracle General Ledger, Subledger Accounting enables compliance with multiple accounting requirements concurrently in a single instance or even across database instances. Different accounting regulations are satisfied by maintaining and applying different sets of accounting rules to different sets of transactions; or by accounting for the same transaction with multiple methods. SLA enables you to satisfy different accounting regulations by maintaining and applying different sets of accounting rules to different sets of transactions or by accounting for the same transaction with multiple methods. Each set of accounting rules can be defined and maintained by select users who have expertise in the accounting principles and regulations of that region. For example, the corporate accounting department can define the SLA accounting rules according to corporate accounting policy and deploy these rules to all local subsidiaries that must abide by them for consolidation reporting. Every subledger transaction for each subsidiary where these SLA rules are deployed is automatically processed using the corporate accounting policy. Since the corporate accounting rules are automatically applied, the local accounting offices don’t need to keep a large staff that is knowledgeable about the foreign accounting principles of the parent company. Local staff can focus on the local accounting practices and regulations, and define and maintain them as a separate set of SLA rules. When any subledger transaction is recorded, all applicable sets of accounting rules are applied to generate multiple sets of journals entries that satisfy all applicable accounting standards. Detailed Example of Enabling Compliance with Multiple Accounting Standards To illustrate, let’s take the situation where a US based company has operations in the US and France and must produce financial statements for reporting authorities in both countries. Specifically: 1. 2. The US operation reports in USD per the US business calendar, US COA, and US GAAP. The French operation is subject to the French accounting regulations, and thus has to report its activities to the local authorities denominated in Euros, according to the French business calendar, French chart of accounts, and the French Fiscal accounting rules. But it also needs to report its financial results to the US parent company for consolidation purposes. The Business Benefits of Oracle Subledger Accounting Page 7 Figure 1. Subledger Accounting supports global business. To address all of these reporting requirements, the US would define a ledger to record its operations using the US chart of accounts, US business calendar, USD currency, and US GAAP accounting rules. France would define two ledgers – one for local reporting and one for corporate reporting to the parent company. The ledger for corporate reporting would have the same characteristics as US ledger US chart of accounts, US calendar, USD currency, and US GAAP accounting rules. The local ledger would have local characteristics - French chart of accounts, French business calendar, EUR currency, and French Fiscal accounting rules. The US corporate accounting office would define one set of US GAAP SLA accounting rules and apply them both to the US ledger and the French corporate ledger. The French accounting office would define a separate set of French Fiscal SLA accounting rules for the local French ledger. To illustrate how these two sets of accounting rules could differ and how a single transaction can be accounted for in multiple different ways, consider that French Fiscal rules sometimes mandate certain purchases of raw materials to be reported as expenses, whereas the same raw materials would be treated as inventory under US GAAP. So when SLA creates the accounting for such a transaction, the local French ledger would have the raw materials recorded to an expense account while the French corporate ledger would have the raw materials recorded to an inventory account. With the above example, it is clear that Oracle Subledger Accounting allows you to: • • Define multiple accounting rules (US GAAP and French Fiscal rules) for a single legal entity and apply them in different ledgers Create multiple journal entries from a single business transaction event (i.e., transaction being accounted for on the primary ledger per French Fiscal accounting rules, and on the secondary ledger per US GAAP). Segregate accounting rule maintenance as desired. So the corporate accounting office controls and maintains the US GAAP accounting rules, while French accounting office controls and maintains the French Fiscal accounting rules. Giving you control where you need it and flexibility where you need it. • The Business Benefits of Oracle Subledger Accounting Page 8 Increase Transparency and Enable Complete Auditability Continuously evolving and expanding compliance requirements keep internal control and auditability concerns at the forefront. Business and accounting processes must be clearly documented and material deviations from them are scrutinized by the auditors and must be explained. The transparency of Oracle Subledger Accounting rules and journal entries helps you stand up to the rigors of a visit from your auditors. SLA rules are defined and stored within the system and can be queried and reviewed at any time by interested parties. These rules are even date-effective, so changes to them over time can be recorded as historical backup. The journal entries that are created when the rules are applied are stored with references to the accounting rules that generated them and linked to the transactions from which they originated. These links allow you to drill down from journal entries to the underlying transactions so you can access the details quickly. The subledger journals combined with the accounting rules offer full disclosure of how the accounting was created for every subledger transaction and provide assurance that it was done correctly. Many non-configurable accounting systems are only capable of generating accounting by one set of hard-coded rules. If your reporting requirements demand accounting that is different from the hard-coded rule, you must enter manual journal entries to adjust the results. Auditors tend to question manual journal entries because they are a common source of accounting errors and omissions; they override existing standard accounting policies, and they generally provide no audit trail. SLA’s configurable accounting rules minimize the need for manual adjustments because you can configure the SLA accounting rules to create the accounting in exactly the way that you need it. Users cannot touch the defined accounting rules unless you give them access. Thus, integrity of the accounting data is protected by the security of SLA accounting rules and decreased need for manual adjustments. GET BETTER INFORMATION AND PROVIDE BETTER REPORTING Build Relevant End-User Reports SLA rules are defined and stored within the system and can be queried and reviewed at any time…subledger journals, combined with the accounting rules offer full disclosure of how the accounting was created for every subledger transaction and provide assurance that it was done correctly. Similar to hard-coded accounting rules, hard-coded reports that are not userconfigurable seldom meet the needs of most audiences who usually have differing reporting requirements. To address the gap, users often resort to creating expensive custom reports to extract the information that they need from their accounting systems. Not only are custom reports resource-intensive to create, but they also make upgrades and maintenance more expensive and arduous. In order to eliminate the need for customized reports, Oracle Subledger Accounting has fully embraced Oracle BI Publisher. The combination of BI Publisher and SLA allows end-users to easily create reports that are relevant to the business requirements at hand with no expensive customizations required. The Business Benefits of Oracle Subledger Accounting Page 9 Oracle BI Publisher lets you create and maintain your own report formats with familiar desktop tools. It lets you mix and match transaction and accounting details, including information captured in descriptive flexfields, to tailor the SLA reports to meet your specific needs. BI Publisher lets you create and maintain your own report formats with familiar desktop tools. These reports are based on XML data extracts directly from Oracle Subledger Accounting. At runtime, BI Publisher merges the custom report template with the SLA data extract to generate the output in the desired format (PDF, HTML, RTF, and Excel). The flexibility of BI Publisher is a result of the separation of the presentation of the report from its data structure. Delivered out-of-the-box in SLA are XML extracts that have been designed with the features of BI Publisher in mind. For example, the Subledger Accounting Account Analysis XML extract contains all of the fields that could be of interest to a subledger accounting report, including the transaction details. This extract offers a wide range of parameters and up to 100 fields to choose from so that you can get the information you need in the format that you need it. You can mix and match transaction and accounting details, including information captured in descriptive flexfields, to tailor the SLA reports to your specific needs. Build a Better Foundation for Reporting and Analysis The general ledger is the foundation of any accounting system because it represents the convergence of accounting data from different sources and applications to provide a complete financial picture of a company or organization. In order to keep the general ledger streamlined, most enterprises typically store only summary level data. A streamlined general ledger helps to ensure good performance for system processes. The downside of maintaining only summary level data in the general ledger becomes apparent when you need to see the detail behind the accounting data. You need to go back to each individual source system or application that affected the general ledger account balance to get the information you want. This can be a tedious and time-consuming task. Just as Oracle General Ledger stores balances and journals, Subledger Accounting stores subledger balances and subledger journals for all of your transaction systems that require accounting. Oracle Subledger Accounting, coupled with Oracle General Ledger, gives you the best of both worlds. It allows your general ledger to be free of extraneous data, so that you can maintain a simple chart of accounts and store only what is needed for general ledger reporting and analysis. But the moment you need to access more detailed information, you can go directly to SLA to see the detail from all transaction sources that fed the GL account balance without having to go back to multiple source systems and applications. This is especially valuable if you have taken the time to integrate your external third party transaction systems with Subledger Accounting to centralize your accounting within SLA. As a comprehensive view of all subledger accounting data, SLA behaves like a detailed version of your general ledger and provides a rich store of information for reporting and analysis. Even if your enterprise uses an external data warehouse for reporting and analysis, accounting data can be fed almost exclusively from SLA and GL. Therefore, SLA, like your general ledger, is an integral part of your accounting infrastructure. As a comprehensive view of all subledger accounting data, SLA behaves like a detailed version of your general ledger and provides a rich store of information for reporting and analysis. The Business Benefits of Oracle Subledger Accounting Page 10 Report on User-Selected Attributes Companies frequently want to analyze account balances and financial results by different transaction attributes. For example, they want revenue and receivables broken down by sales rep, profitability by customer, cost of goods and payables by vendor, and so on. However, transaction information like sales rep, customer, vendor, etc. is typically not stored in the general ledger due to the volume of GL data it would create, so users were not be able to analyze GL data categorized by transaction attributes. In Release 12, Oracle Subledger Accounting enables you to perform this type of reporting and analysis using supporting reference information from subledger transactions. This feature allows business users to select relevant transaction information by which to report their accounting data, so that they can report on an account balance, like receivables for example, by transaction attributes like sales rep, customer, credit risk category, item, or any combination thereof. More importantly, these supporting references can be applied to accounting data coming from multiple products or even multiple systems (if you are integrating external systems into SLA), so if you need to know total bank charges paid for the year and you have bank accounts in multiple applications – SLA allows you to maintain and report on that value without manual or external processes. IN SUMMARY Oracle Subledger Accounting offers unparalleled visibility into enterprise-wide accounting information with a single, global accounting repository. It addresses the concurrent needs for centralized accounting processes with strong internal controls and diverse accounting treatments. In summary, Oracle Subledger Accounting enables you to: • • • Lower costs with streamlined accounting processes Meet diverse global accounting requirements and maintain internal controls Access better information and provide better reporting The Business Benefits of Oracle Subledger Accounting Page 11 The Business Benefits of Oracle Subledger Accounting September 2007 Author: Elise Mattei, Linda Wong Contributing Authors: Joe Gum, Rob Zweibach, Neil Ramsay Oracle Corporation World Headquarters 500 Oracle Parkway Redwood Shores, CA 94065 U.S.A. Worldwide Inquiries: Phone: +1.650.506.7000 Fax: +1.650.506.7200 oracle.com Copyright © 2007, Oracle. All rights reserved. This document is provided for information purposes only and the contents hereof are subject to change without notice. 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